1. Field of the Invention
The present invention is directed to systems and methods for calculating estimated Social Security benefits. More specifically, the present invention is directed to systems and methods for determining the optimal approach a married couple should take to maximize Social Security benefits, including spousal and survivor benefits.
2. Background of the Related Art
In the United States, individuals who work and pay Social Security taxes for a prescribed number of years are entitled to receive their full Social Security retirement benefits when they reach full retirement age. Workers earn a credit for each quarter that they work and pay Social Security taxes, and retirement benefits are available to individuals who have earned at least 40 credits, meaning that they have worked and paid taxes for at least 10 years. Full retirement age ranges from 65 to 67 depending on the recipient's year of birth. For example, full retirement age for an individual born in 1954 is 66 years old, while full retirement age for an individual born in 1960 or later is 67 years old. When individuals reach their full retirement age, they are entitled to their primary insurance amount. An individual's primary insurance amount is based on the 35 years of employment during which he or she earned the highest salary.
Social Security retirement benefits can be claimed as early as age 62, although the benefit will be reduced by 20 to 30 percent depending on the individuals full retirement age. The Social Security Administration also offers deferred retirement credits to those who postpone collecting their benefits beyond their full retirement age. For every year beyond full retirement age that payments are put off, the Social Security Administration provides a guaranteed annual increase of 7 to 8 percent, depending on year of birth, to the individual's primary insurance amount. This is in addition to the annual cost of living adjustment to benefits.
In addition to their own benefits, individuals may also be eligible for spousal and survivor benefits. For a married couple, the Social Security Administration designates a primary earner and a secondary earner. The primary earner is defined as the spouse in the married couple having the higher primary insurance amount, or in other words, the higher monthly benefit. The secondary earner is defined as the spouse in the married couple having the lower primary insurance amount, or in other words, the lower monthly benefit.
While both spouses are living, the secondary earner is entitled to spousal benefits equal to 50 percent of the primary earner's primary insurance amount provided the primary earner has filed for benefits. If the secondary earner is also entitled to his or her own benefit, the individual benefit will pay first and the spousal benefit will make up the difference between that and 50% of the spouse's primary insurance amount. For example, if the primary earner had a primary insurance amount of $2,000, the secondary earner would be entitled to a spousal benefit of $1,000 at full retirement age. Assuming a primary insurance amount of $750 for the secondary earner, he or she would receive both the primary insurance amount payment of $750 and a spousal benefit payment of $250 to bring the total combined benefit to $1,000. If spousal benefits are collected prior to a spouse's full retirement age, the spousal benefit may be permanently reduced.
In the event that the primary earner dies first, the secondary earner may be entitled to survivor benefits. Survivor benefits will be at least equal to the primary earner's actual benefit at the time of death. If the primary earner dies before filing for benefits, the Social Security Administration will calculate the primary insurance amount for the decedent using the best 35 years of earnings as of the year of death. A surviving spouse can collect a survivor benefit as young as age 60, subject to a reduction. The decision by the primary earner concerning when to collect his or her individual Social Security benefits, whether it be at age 62, at full retirement age, at age 70, or somewhere in between these ages, has a direct impact on any survivor benefit that may be paid to the surviving spouse.
Given the many factors that must be taken into account, determining when and how to collect Social Security retirement benefits so as to optimize the benefits received as a married couple can be a difficult task. Accordingly, there is a need for systems and methods for determining the optimal approach for receiving Social Security benefits for married couples.